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BAIR PUSHBACK — Sheila Bair’s FORTUNE column highlighted in yesterday’s M.M. criticizing the Fed’s past and present efforts to crackdown on banks has, as her critiques often do, drawn a reaction. From a former Clinton/Obama administration alum “who dislikes 20/20 hindsight”: “I wonder if that’s the same Sheila Bair who served as chair of the CFTC’s Financial Products Advisory Committee during the mid-1990s when the CFTC regularly exempted derivatives transactions from being traded on exchanges helping drive an explosion in the OTC markets ...

“Or the same Sheila Bair who promised to keep an eye on financial innovation in the derivatives markets in the wake of Gramm Leach Bliley when she was nominated by President George W. Bush to serve in his Treasury Department in 2001. And also promised Sen. [Paul] Sarbanes in that same hearing that she would follow up on what she called the ‘excellent report’ on curbing predatory home mortgage lending that had been charted out by Secretary Larry Summers in 2000. Although she did caution him that she wanted to make sure we didn’t creative disincentives to what she called ‘legitimate subprime lending.’”

Most of Bair's column focuses on what the Fed should do during the waning days of the Bernanke regime, but her take on the past (and maybe her tweak of Larry Summers in the column) has touched a nerve.

BEHIND THE CURTAIN: 2013 ‘DISASTER’ YEAR FOR GOP — POLITICO’s Mike Allen and Jim Vandehei: “It is almost impossible to find an establishment Republican in town who’s not downright morose about the 2013 that has been and is about to be. Most dance around it in public, but they see this year as a disaster in the making, even if most elected Republicans don’t know it or admit it.

“Several influential Republicans told us the party is actually in a worse place than it was Nov. 7, the day after the disastrous election. …

“These Republicans came into the year exceptionally hopeful the party would finally wise up and put immigration and irresponsible rhetoric and governing behind them. ... But elite Republican strategists and donors tell us they are increasingly worried the past nine months make 2016 look very bleak — unless elected GOP officials in Washington change course, and fast.” http://politi.co/1dbRB2W

“A key defense for Javier Martin-Artajo and Julien Grout, the two traders targeted in charges announced Wednesday by U.S. prosecutors, is expected to be that the high-stakes derivatives bets their unit made were difficult to value, according to people close to the two.” http://on.wsj.com/16qGAtn

REAL WORLD: MORE THAN 600 KILLED IN EGYPT — NYT’s David Kirkpatrick in Cairo: “Gathering Thursday morning around a mosque used as a morgue for hundreds killed the day before, many Islamists waited confidently for a surge of sympathetic support from the broader public. But it failed to materialize. With their leaders jailed or silent, Islamists reeled in shock at the worst mass killing in Egypt’s modern history. By Thursday night, health officials had counted 638 dead and nearly 4,000 injured, but the final toll was expected to rise further.” http://nyti.ms/18yGQnV

OBAMA RECAP — If you missed President Barack Obama’s statement on Egypt from Martha’s Vineyard yesterday, here was the crucial line from his speech: “This morning we notified the Egyptian government that we are canceling our biannual joint military exercise which was scheduled for next month. Going forward I’ve asked my national security team to assess the implications of the actions taken by the interim government and further steps that we may take as necessary with respect to the U.S.-Egyptian relationship.” POLITICO’s Jonathan Allen has the full analysis: http://politi.co/14D6hk2

BEHIND THE NEW BENJAMIN — Esquire’s September issue has a fascinating look at the new $100 bill, complete with a photo slideshow of how the Benjamin is produced: “Our new hundred-dollar bill, like every other single piece of American folding money, is born in this rotary boiler. It’s a perfect sphere, an angry kettle fifteen feet across, spinning high off the ground between two stained concrete towers. Most people swear out loud when they see it for the first time. ...

“The boiler feels almost monstrous, a relic of a spitting industrial age, corrosive and mean, and it feels that way especially when it finally stops spinning and its oval maw clangs open, vomiting tons of boiling cotton that hits the floor with a heavy slap. There it is, the earliest, no-bullshit incarnation of cash: piles of raw cellulose cooked to its fibrous essence, as brown as it is white, and scalding. American money is born in a flame.” http://bit.ly/16PVVlz

THIS MORNING ON POLITICO PRO FINANCE — POLITICO’s Jon Prior on the FHFA’s deliberations on whether to decrease the size of mortgages that Fannie and Freddie can finance … To learn more about Pro's subscriber-only coverage — and to get Morning Money every day before 6 a.m. — please contact Pro Services at (703) 341-4600 or info@politicopro.com.

GOOD FRIDAY MORNING — While your regular M.M. host Ben White moves into a new home and enjoys the surf and sand for a few weeks, POLITICO’s MJ Lee and Kate Davidson will be filling in. We can’t promise you Ben’s play-by-play of how the Yankees are doing, but we will do our best to bring you up to date on financial services news before you start your day. Email us at mlee@politico.com and kdavidson@politico.com with tips, questions and suggestions, and follow us on Twitter: @mj_politico and @katedavidson. And as always, follow @morningmoneypro and @POLITICOPro for all of the latest coverage from POLITICO Pro.

BREAKING M.M. PUBLIC SERVICE ANNOUNCEMENT — Change of plans — M.M. will NOT be going dark the week of Aug. 26. Anyone worried about suffering from M.M. withdrawal can rest easy.

DRIVING THE DAY — Housing starts at 8:30 a.m., expected to rise to 900,000 from 836,000 ... University of Michigan consumer sentiment at 9:55 a.m. expected to tick up to 85.5 from 85.1 ... http://bloom.bg/1296v5G

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POLITICO ANNOUNCES NEW PRO HIRES — POLITICO announced yesterday that reporter Doug Palmer of Reuters will be joining the POLITICO Pro Trade vertical scheduled to launch this fall. The announcement called Palmer “one of the most celebrated journalists covering international trade” with 15 years’ experience covering every major trade story. Palmer will be a senior trade reporter and is one of nearly a dozen hires that Pro has made ahead of its expansion into trade, agriculture and education coverage.

WAPO SCOOP: NSA BROKE PRIVACY LAWS ‘THOUSANDS OF TIMES’: Another NSA bombshell from the Post’s Barton Gellman: “The National Security Agency has broken privacy rules or overstepped its legal authority thousands of times each year since Congress granted the agency broad new powers in 2008, according to an internal audit and other top-secret documents.

“Most of the infractions involve unauthorized surveillance of Americans or foreign intelligence targets in the United States, both of which are restricted by law and executive order. They range from significant violations of law to typographical errors that resulted in unintended interception of U.S. e-mails and telephone calls.” http://wapo.st/1a9WtGf

ON SUMMERS, CANTWELL DIGS IN — Seattle Post-Intelligencer’s Joel Connelly: “Lawrence Summers will need to ‘do a mea culpa’ and admit his role in deregulatory mistakes that helped cause the Great Recession if the Washington, D.C., financial mandarin wants to be chairman of the Federal Reserve Board, U.S. Sen. Maria Cantwell, D-Wash., said in Seattle on Thursday. ... ‘Nobody is going to get my support unless owning up to mistakes of the past,’ she said after a Seattle news conference. http://bit.ly/19wzoyh

SIGTARP: TREASURY PLAYED DIRECT ROLE IN GM DECISIONS — A report (http://1.usa.gov/1dbQnoB) yesterday from the Special Inspector General for TARP found that the Treasury Department’s auto bailout team “used their leverage as GM’s largest lender to influence GM to make decisions in areas that did not require Treasury’s consent, in line with Treasury’s preferences.”

In a response letter to SIGTARP, Tim Massad, Treasury’s assistant secretary for financial stability, said: “The report makes a number of judgments and characterizations, particularly with regard to the decision-making process, that we do not believe to be supported by the facts stated above, or any others in the report. ... The actions taken brought needed stability to the auto industry and helped save more than a million American jobs.”

House Oversight Committee Chairman Darrell Issa is not happy: “This is troubling news that lends credence to the fact that the federal government essentially took over a private company and made decisions that chose winners and losers.”

DETAILS OF FISCAL DEAL REMAIN OPAQUE — NYT’s John Harwood on how Washington can solve three fiscal rifts: “On the endgame for the budget showdown looming in Washington this fall, only this is clear: President Obama thinks Republicans cannot risk another debt crisis or government shutdown, and Republican leaders agree.

“That consensus suggests that the odds of an economy-damaging stalemate are relatively low, despite rising jitters in the capital. Yet everything else about how the White House and Congressional negotiators will try to strike a deal, and then coax majorities to approve it, remains opaque.” http://nyti.ms/16OMzog

LAWSKY ON FINANCIAL CRISIS PROSECUTIONS — Part II of Benjamin Lawsky’s Q-and-A with American Banker’s Maria Aspan: “Having been a former prosecutor, it’s a very high bar to reach, to decide that you’ve got probable cause, that an intentional crime was committed. And you’re talking about incredibly complex products that were being produced at the time in enormously diffuse organizations, and to be able to point the finger at the tops of those organizations and be able to prove a criminal case for the leaders of those organizations, based on incredibly complex financial dealings that were going on deep in the bowels of those organizations, is very, very difficult.

MARKETS SPOOKED BY INTEREST RATE HIKE — CNBC’s Patti Domm: “Stung by a rapid rise in interest rates, stocks plunged Thursday in their worst selling spree since June, raising the question of whether a long anticipated correction has begun. Yields have been rising, and the pace of bond selling picked up after weekly jobless claims fell to the lowest level since 2007. ... (T)he claims report reflects an improving employment picture, and that’s what traders believe will spur the Fed to slow down its bond purchase program.” http://cnb.cx/16oLTd0

GALLUP: OBAMA’S ECONOMIC APPROVAL SLIPS — POLITICO’s Tal Kopan: “Approval of President Barack Obama’s handling of the economy has declined by 7 percentage points this summer, according to a new poll Thursday. Just 35 percent of Americans approve of the president’s job on the economy, down from 42 percent in June, according to a Gallup survey. Sixty-two percent disapproved. Overall approval of the job Obama is doing as president also fell 3 points from June, to 44 percent.” http://politi.co/1a9bbxc

AUTO LOAN RISKS RAISE FLAGS — NYT’s Catherine Rampell: “Auto lending is up, which has brought concerns about whether risky loans are driving the trend. A new analysis from the Federal Reserve Bank of New York finds new auto loans to borrowers with low credit scores have indeed risen, but are still well below the levels seen during the credit bubble years leading up to the financial crisis.” http://nyti.ms/16phZW7

ON THE GROUND IN RICHMOND, CALIF. — FT’s April Dembosky in California and Stephen Foley in New York: “'The Godfather' flashes silently on the TV as Steve Wilson sips a tequila and apple juice cocktail, clutching a letter from the property assessor.

“The house he bought 11 years ago for $280,500 is worth $137,000 today. Factoring in the loan that added interest to his principal, and deferred property tax bills that accrued when he was sick with colon cancer, the part-time automotive repair salesman is now paying off a $300,000 mortgage.

“‘I’ll be dead long before then,’ the 54-year-old says; the screen behind him showing a mob boss whispering threats of a shakedown.” http://on.ft.com/18y9B3W

HEFTY PRICE TAG FOR RICHMOND LOANS: WSJ’s Nick Timiraos and Jeanette Neumann: “The city of Richmond, Calif., is seeking to acquire mortgages as large as $1.1 million under its plan to invoke powers of eminent domain to purchase and restructure underwater mortgages. ... The hefty price tag for some of these loans could complicate the argument made by Richmond city officials that they need to seize the mortgages to help homeowners who owe more than their homes are worth, putting them at risk of foreclosure.” http://on.wsj.com/14OBd7P

ALSO FOR YOUR RADAR —

EU HUDDLE ON EGYPT — WSJ’s Laurence Norman in Brussels: “Senior European diplomats will meet Monday to begin considering what action to take in response to the bloody crackdown on protesters by Egypt’s interim authorities and the imposition of a state of emergency. A European Union spokesman said Thursday that officials from the bloc’s 28 member states will meet in Brussels to discuss the situation in Egypt and to prepare a ‘possible’ meeting of EU foreign ministers in the coming days.” http://on.wsj.com/18ycaDm

PENTAGON’S NEW PUSH TO TACKLE SEXUAL ASSAULT — POLITICO’s Darren Samuelsohn: “Defense Secretary Chuck Hagel approved six new orders Thursday to address sexual assault in the military, although Pentagon officials also acknowledged many of the ideas originally came from Congress or are already in practice.” http://politi.co/1bBo6pG

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